Homes on Cash

Invest in Real Estate with little or no money! Get rich fast with Real Estate investments! How to invest in Real Estate with no money down and no previous experience! 

If you've heard these hot button statements about making quick money in the Real Estate market, you're not alone. One of MVP's most frequently asked is "How do I get started in Real Estate investing?" Investing in real estate property can be a great way to build wealth, but it's not for everyone and there are lots of options for investing responsibly. First, let's go back to the basics and learn about the importance of cash flow vs. property performance. The factors that determine whether a property is a good investment for you. 

Calculating Property Performance

A property's investment potential can be calculated regardless of having an investor attached to the numbers. There are 3 factors to consider - property price, gross income and expenses. These 3 factors are what we have to play with when trying to make the numbers work. 

Let's look at an example. A duplex multi-family home comes on the market listed for $450,000. The rent rate per unit is $1500 giving you a total of $3000 gross monthly income and $36,000 annual gross income. The general rule for investing in Real Estate is that between taxes, insurance, repairs, vacancy turnovers etc... 25% of that income is gone to expenses, leaving 75% income as your take home or Net Operating Income (NOI).  If we break it down:

Duplex Price: $450,000

Rental Income per Unit: $1500

Total Monthly Rent Income: $3000

Annual Gross Income: $36,000

Gross Income($36k) x 75% = NOI of $27,000

Lastly, you want to look at the Capitalization Rate (CAP Rate). This is the return on your investment on an annual basis and to get this number you take your NOI divided by the purchase price of the property. The average capitalization rate changes based upon market location and characteristics. Current average is around 5% and 6+% is really healthy.

$27,000/$450,000 = CAP Rate of 6%

The Art of Cash Flow 

Cash flow is the monthly profit you bring in after all expenses are paid, including the mortgage. A couple hundred in monthly cash flow is great to see, allowing for a portion to be set aside as a maintenance and emergency fund, but it's not strictly necessary. If you already have outside funds set aside for unforeseen repairs than it can still be a good fit to find an investment property with little to no cash flow. It's situational and based on the right fit for your financials and schedule. If you have more questions about investing in Real Estate, give us a call at 360-915-9123.